Turning CSI into an investment

It took the words of a legendary South African struggle leader to sow the seeds for a CSI funding model that’s ahead of its time.

“When we started our business in 1995, Professor Jakes Gerwel gave us some priceless advice,” recalls Mustaq Brey, co-founder of Brimstone Investment Corporation.

“We were passionate about creating a business that would also be able to play a role in uplifting people in our community as well as throughout South Africa,” recalls Brey of the black-controlled and -managed investment company he setup with Fred Robertson.

“Jakes told us that if we want to go into business we have to be driven to make a profit because, without a profit, there was no way we would be in a position to empower anybody.”

The advice from the legendary academic and anti-apartheid activist has served Brey and Robertson well in building the successful – and highly profitable – Brimstone Investment Corporation.

More importantly, Gerwel’s advice provided the seed for a revolutionary idea that Brey would develop over the decade that followed. It was an idea characterised by the principle of making investments in people.

“We formed the Brimstone Empowerment Share Trust (BEST) in 2005 to create a more sustainable model of support. Through this trust, we award NGOs with Brimstone shares at no cost to the NGO. These organisations share in the dividends paid on those shares as well as the growth of the company over time,” says Brey.

The only proviso is that each organisation has to retain their shares for a minimum period of five years.

“This is important because it taps into the mindset of long-term sustainability,” adds Robertson. “As business owners we know how hard-earned profit can be, which is why most business leaders I speak to are cautious about embarking on major CSI initiatives. The thought of money being wasted goes against the grain when you know how hard it has been to create that money in the first place.”

Before granting any shares, Brimstone undertakes a thorough due diligence of each NGO, after which an independent board of trustees will discuss and debate the merits of each application. Brimstone has not set a ceiling on the number of shares allocated to each beneficiary NGO, as the final allocation is based on the individual needs and merits of each applicant.

“What we can say is that it is a substantial amount of shares,” adds Brey.

In 2007 the Cape Flats Development Association (CAFDA, The Shalamuka Foundation and Yabonga Trust became the first NGOs Brimstone offered shares to, and they have all reaped the rewards of the initiative financially and in terms of achieving long-term sustainability.

To date, 31 organisations with a broad base of beneficiaries have been awarded in excess of 1,7-million shares through BEST. The market value of these shares as at 31 August 2018 was in excess of R16-million. These shareholders support at least 3,5-million beneficiaries across South Africa.

In times of financial crisis, when cash is king, the Brimstone offer might not be what most NGOs are looking for, but that’s all the more reason why it adds real value to these organisations.

“Even if an NGO is in financial crisis, what matters to us is not bailing water out of a sinking ship, but making sure that the vessel is seaworthy,” says Brey. “We’re looking to help organisations long term, and that creates a whole different separate set of needs and opportunities.”

Aside from being able to share in the growth of their investment, these organisations also benefit from an increase in cash flow in the form of cash dividends that are paid out directly to them. NGOs are also able to collateralise the shares as they are issued in their name. These shares strengthen their balance sheets, improve their overall credibility, which brings and brings with it numerous financial benefits. After five years the organisation is allowed to start selling their shares at a rate of 20% per year.

“Only two of the organisations we have granted shares sold some pf their shares after the five years, and in both cases that was because of specific cash requirements for each organisation. The rest of the NGOs have retained their holdings and are steadily reaping the rewards,” says Robertson.

This retention of shares by the BEST NGOs bears testament to the strength of Brimstone’s due diligence process and their instinct for decision making. Over the past two decades they have learnt how to identify companies and organisations that have what it takes to enjoy long term sustainability and growth. Their sustainability is also a hallmark of Brimstone’s involvement with the NGOs, as they welcome them into their broader network and offer human resource and knowledge sharing wherever possible.

“BEST has given us the opportunity to put a face to our responsibility as a corporate,” adds Robertson. “Corporate South Africa needs to complement the NGO sector as it’s essential for these organisations to grow and to be able to service the social initiatives that government and business are unable to reach on their own.”

Thinking beyond their own CSI missions, the Brimstone team hope to encourage other corporates to look to create more sustainable CSI initiatives with other NGOs.

“Too often CSI money goes towards ‘paying for fish’, but if you choose to take a more sustainable approach to supporting NGOs, it feels a lot more like you are buying someone a fishing rod,” smiles Brey.

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